Question

Within every financial jurisdiction there are several Acts/ Laws of Parliament, used to regulate that financial space to present systemic issues while engendering the highest degree of confidence. In 2010, the US government enacted the Foreign Accounts Tax Compliance Act (FATCA), which mandates all foreign financial institutions to employ enhanced due diligence procedures, to identify and report US citizens and Green Card holders with balances in their accounts of over US $50,000.00 for tax purposes. For the purpose of this exercise using a financial institution familiar to you:

? Provide compelling arguments of no less than four reasons why the financial institution familiar to you has implemented enhanced due diligence procedures for established account holders or onboarding new accounts. In your presentation identify some of the new procedures or requirements implemented as part of the enhanced due diligence procedures (Marks 4)

? Failure to implement enhanced due diligence procedures for existing customers and on bordering of new accounts, could have serious implication for the financial institution. Articulate no less than four consequences the financial institution could face for failing to implement enhanced due diligence procedures to ensure compliance. (Marks 4)

? Comment on at least two posts from your peers and provide support for your responses. (Marks 2)

Answer 1

The main reasons as to why financial institution familiar to me have implemented enhanced due diligence procedures are:

• To comply with Anti Money laundering laws and to protect the institution from frauds and bad actors
• To mitigate risks attached to any form of transaction taking place within the jurisdiction of the institution
• To identify bad actors at the very initial stage, so that not much harm can be done to the institution
• To identify any terror financing groups or individuals

Some of the new procedures they have implemented are:

1. Verification of the identity of customer using independent agency or document
2. Identification of the nature of business and scrutinize the nature of its transactions

Four major consequences which financial institutions can face, if they fail to implement enhanced due diligence procedures :

• Massive financial loss due to frauds,etc.
• Possible Federal action and punishment, due to laxity in implementation of proper procedures and guidelines
• Loss of reputation and loss to share holders & stakeholders
• Loss of market share, and loss of customer base, and loyalty

I could comment on the reasons mentioned, as to why the financial institution will lose market share and customer base is because, once any form of fraud or any illegal activity or any form of laxity on the part of the financial institution is detected, customers would get skeptical about the institutions operational procedures and would want to shift to a more secure platform. If that happens, the institution will automatically suffer a loss in reputation which would tremendously affects its stakeholders and its shareholders.